A Co-Signer’s Mortgage Liability Turns on Loan Wording

The Dispute

Ada Rowlett co-signed a mortgage, later the subject of First West Credit Union v. Bizarro, 2024 BCSC 2047, so her nephew could buy a home in Kitimat. The loan agreement named her as a borrower rather than a guarantor. It gave her a one percent interest in a property she told the lender and the notary she never intended to live in or invest in. When her nephew stopped paying and the credit union foreclosed, personal judgment for the full shortfall was entered against her alongside him and registered against her own separate home.

The Parties’ Positions

First West Credit Union argued that Rowlett had raised no defence capable of defeating its claim on her covenant to pay as a named borrower. Even if her failure to attend the May hearing was not wilful and her application to reconsider was timely, it submitted, that omission alone did not entitle her to reopen the judgment. Relying on Domain Mortgage Corp. v. Movassaghi, it argued that any misrepresentation by its branch manager was at most an independent damages claim, not a defence to the debt itself, and so could not support setting the judgment aside.

Ada Rowlett advanced several grounds for setting the judgment aside, including non est factum, negligent misrepresentation, unconscionability, undue influence, equitable estoppel, unilateral mistake and want of consideration, needing to establish only one as worthy of investigation. She relied on her evidence that the branch manager described her role only as a co-signer, said she would be responsible only for payments her nephew missed, and twice assured her that her own residence would not be exposed. The loan documents she was shown for the first time at signing named her instead as a borrower and gave her a one percent joint tenancy interest in the mortgaged property. She told the branch manager, and later the notary, that she did not want that interest, and she waived independent legal advice on the strength of the assurances she had been given.

The Court’s Decision

Justice Harvey held that Rowlett’s failure to attend the May hearing was negligent rather than wilful, and that she had moved with reasonable dispatch once she learned of the judgment. He accepted that the alleged misrepresentation about her role, even if not strictly a defence, raised a real risk of a serious miscarriage of justice if left unaddressed. He set aside the personal judgment against her for the mortgage shortfall and the line of credit, leaving the order for sale of the property untouched since she had not opposed it. He declined to refer the personal-liability issue to the trial list as premature, holding it could proceed summarily unless further evidence raised credibility issues. Despite her success, he ordered the costs of her own application to the petitioner in the cause, because the application had been occasioned by her negligence in failing to respond to the petition.

Key Lessons for Loan Co-Signers and Lenders

• Read the status the loan document assigns, not the label used at the branch. Rowlett was told she was a co-signer responsible only for missed payments, but the loan agreement named her a borrower with a one percent ownership interest, a status this court found carried broader exposure than a guarantee.
• Confirm in writing what a signer’s role will be before the loan documents are prepared. The credit union’s branch manager gave oral assurances about co-signing that the signed loan agreement did not reflect, a mismatch the court treated as capable of reopening a judgment already entered.
• Independent legal advice exists precisely for the moment a document’s terms depart from what was discussed. Rowlett waived that advice and signed as a borrower on the strength of the branch manager’s assurances, and the absence of that safeguard became central to why the court found her defence worthy of investigation.

The outcome of this application turned on the evidence of what was said at the credit union’s branch and on the wording of the loan documents Rowlett signed. A similar dispute may resolve differently.

ATAC LAW acts for borrowers, guarantors and lenders in disputes over loan and mortgage documentation.

This matter was conducted by Roy Donghee Kim, an associate lawyer at ATAC LAW, who acted for the co-signer on the application to set aside the personal judgment.